India specializes in business process outsourcing and does this more efficiently than any other country. It buys agricultural commodities, which it produces less efficiently than outsourcing activities, from the United States, even though it produces these agricultural commodities more efficiently than the United States Which international trade theory supports India's decision to buy agricultural commodities from the United States?
A) Samuelson critique
B) mercantilism
C) Ricardo's theory of comparative advantage
D) Adam Smith's theory of absolute advantage
E) Leontief's paradox

Question

Quizplus · Accepted Answer

Ricardo's theory of comparative advantage suggests that countries should specialize in producing goods where they have a lower opportunity cost, even if they are more efficient in producing other goods. India focuses on outsourcing, where it has a comparative advantage, and imports agricultural commodities from the U.S., which aligns with this theory.

India Specializes in Business Process Outsourcing and Does This More